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On to Plan B: Starting a Business

When her job at Williams-Sonoma ended, Lisa Marie Grillos started a company with her brother, making bags to go on bicycles. She is one of the recession's many "accidental entrepreneurs."Credit
Noah Berger for The New York Times

CALL them accidental entrepreneurs, unintended entrepreneurs or forced entrepreneurs. A year and a half into the Great Recession, with the jobless rate hovering near double digits, corporate refugees like Lisa Marie Grillos of San Francisco are trying to fend for themselves.

Along with her brother Hernan Barangan, Mrs. Grillos started Hambone Designs, after her full-time contract position with Williams-Sonoma as a production manager wasn’t renewed in January. The new company makes bicycle bags that hold things like keys, wallets and cellphones.

“You have the time — why not focus your energy on something, rather than just trolling Craigslist and sitting and watching TV?” Mrs. Grillos says. “It’s really taking matters in my own hands.”

Mrs. Grillos, 34, built a Web site called hambonedesigns.com, opened a virtual shop on Etsy.com, an online marketplace, and hit San Francisco street fairs. So far, between the online marketing and the street fairs, she and her brother have sold 70 bags, which retail for $20 to $40. Each sale results in a profit.

To help make ends meet, Mrs. Grillos also does textile design and photography projects, and it helps that her husband has a full-time job.

Others among the unemployed are taking the entrepreneurial route. The most recent Index of Entrepreneurial Activity by the Kauffman Foundation showed a slight uptick of new businesses in 2008 — a full recessionary year — over 2007. An average of 320 Americans out of 100,000 formed a business each month, Kauffman said. What’s more, it found, the patterns “provide some early evidence that ‘necessity’ entrepreneurship is increasing and ‘opportunity’ entrepreneurship is decreasing.”

Accidental or by design, entrepreneurship is on the rise again this year. LegalZoom.com, the online legal document service, says the number of new businesses it helped to form was up 10 percent in the first half of the year, compared with the period a year earlier.

“We were surprised,” says Brian Liu, co-founder and chairman of LegalZoom. “We expected there to be a drastic downtick.”

LegalZoom’s top five areas of incorporation, he says, are real estate, consulting, Internet (including electronic commerce), retail, and construction and contractors.

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Lynn Zuckerman Gray, at a meeting in a park in New York, lost her job and started a recruiting company called Campus Scout.Credit
Ruby Washington/The New York Times

To be sure, a vast majority of corporate workers who have been laid off since December 2007 have sought another corporate job. After all, starting a business in the worst downturn in decades seems especially risky. Only two-thirds of new small businesses survive at least two years, according to the Small Business Administration. That survival rate falls to 44 percent at four years, and to 31 percent at seven.

The silver lining may be that the survival rate is about the same in expansions and recessions, says Dane Stangler, senior analyst at Kauffman.

WHILE the Internet has made the formation process quick and inexpensive — papers can be filed with LegalZoom, for example, for $149 in addition to state filing fees — the costs of owning a business add up quickly. There are state and local taxes and fees, insurance, salaries and contract pay, overhead, inventory and the like. And these days, lenders are none too generous when it comes to forking over money to new businesses.

These factors, combined with the lack of a steady paycheck, often-inadequate health insurance and the sheer emotional stress of being unemployed, may prevent many people from setting out on their own.

But research on what is known as post-traumatic growth has found that some people become more resilient when faced with adversity, says Shawn Achor, a Harvard researcher. Creativity surges, he says, as they adapt to a new situation.

“Their brain is actually learning at a faster pace than when they are not challenged,” Mr. Achor says. “As a result of this, some individuals, the accidental entrepreneurs, they are the ones who in the midst of crisis actually respond with growth.”

In a report this summer on innovation, Ernst & Young wrote, “Experience shows that entrepreneurs should not give up on start-ups in a down economy.”

Many companies with billion-dollar market capitalizations were started during a recession, the report said, including Starbucks, Intuit and PetSmart.

Research from Kauffman in June found that more than half of the companies on the Fortune 500 list in 2009 and nearly half of the companies on the Inc. magazine 2008 list were founded during a recession or bear market.

Lynn Zuckerman Gray, 60, hopes to be one of the success stories of this recession. She lost her job at Lehman Brothers almost a year ago, when the firm collapsed. A former chief administrative officer of its global real estate group, she found herself competing with a rising number of job seekers for a dwindling pool of jobs.

Ms. Gray ended up participating in a New York City program, offered in conjunction with the Kauffman Foundation, called FastTrac NewVenture. The program, for employees displaced by the financial crisis, sent Ms. Gray in a direction she never thought she would go: starting an on-campus recruiting company called Campus Scout.

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“I guess I had an entrepreneur simmering inside me because I’ve always been very creative,” she says.

The cost has been hundreds of dollars here and there, she says. Still, the reality of her financial situation is daunting. Her severance pay from Lehman ended this month, and she is now eating into her savings. So far, her new venture, Campus Scout, is in start-up mode and does not have any clients.

She says she is going to try to get part-time work, teach university classes and do some freelance writing to generate cash flow so she can keep her business going for at least two years.

IT’S not just ex-corporate workers who have started businesses out of necessity. In February, Jackie Burke, 68, a retired schoolteacher, and her daughter, Jackie McAlister, 38, a schoolteacher on maternity leave, formed the Cup and Saucer Cookie Company in Ocean City, N.J.

“I never in my lifetime thought of owning a business,” Ms. McAlister said, “the economy has forced us to be creative.” And fast-acting. Stocks nosedived in the fall, and so did her mother’s retirement account.

“Mom was crying, and she said, ‘Maybe I can go to Borders to see if they are hiring.’ I said, I’m not going to watch my retired 68-year-old mom, with two knee replacements, go work at Borders. This is not going to happen.”

Instead, Ms. McAlister and her mother brainstormed about starting an Internet business. A claim to fame they both had was making cookies, she said. She did research in January, filed incorporation papers on LegalZoom in February, started a Web site using GoDaddy.com, and by March sold their first cookies.

“It sounds like a crazy idea, but it was out of total necessity,” Ms. McAlister said. “We had to do something.”

Their Internet business is slow, helped mainly through her Facebook friends and local news coverage, she said. They sell about $200 worth on the Internet each month and about $100 at a local cafe each month. They are near to breaking even, Ms. McAlister said.

Even when she returns to school in the fall, she said, they will keep it going. “The experience has been totally worth it,” she said, and has had the added benefit of distracting them from things out of their control, like the stock market.

Entrepreneurs like the McAlisters, Ms. Gray and Mrs. Grillos have been helped by a growing number of companies that cater to the needs of new businesses.

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When her job ended, Lisa Marie Grillos began making pouches for bicyclists in the basement of her house in San Francisco.Credit
Noah Berger for The New York Times

Recently, Mrs. Grillos attended a networking event in San Francisco organized by Outright.com, which offers bookkeeping software, and Network Solutions, a company that helps small businesses start and market on the Web. The companies had specialists on hand to talk about accounting, tax, legal and other issues facing new business owners.

Kevin Reeth, chief executive of Outright, says, “We realized these people, who have had careers and worked for other people most of their professional life, are not at all prepared to go out and become a business owner.”

The companies jointly started a Web site, unintentionalentrepreneur.com, as a resource and embarked on a five-city tour in partnership with local chambers of commerce and Score, the national group of volunteer mentors. Last week, the tour ended in Manhattan, but the hope is that the networking will continue, Mr. Reeth says.

ANOTHER company that is tailoring its services to very small and new businesses is InfoStreet, a maker of Web-based small-business management software. Michael Hart, 53, of Nashville, says InfoStreet recently had the backbone of NewTerraLiving.com, his new online marketplace for eco-friendly goods, up and running very quickly, and at a very affordable cost.

Mr. Hart started his business after he left an electronic publishing company a year ago. He has been living off his savings and now has booked sales on his site. “The significantly lower costs associated with building the technology infrastructure as well as the phenomenon of social network marketing allowed me to jump in,” he says.

So, will all of these new ventures become viable entities, or are they simply résumé builders and time fillers for people temporarily out of work? For Mr. Hart, it is definitely not a path to a cubicle. “If successful, I don’t see myself returning to corporate America,” he says. “If I’m not successful, I would definitely start another company — if my wife doesn’t kill me.”

Mrs. Grillos acknowledges that she is still job-hunting. “It would be great if this became my full-time job and grew that big,” she says of Hambone Designs. “Even if I found one, I would still have this on the side.”

Martha E. Mangelsdorf, author of “Strategies for Successful Career Change,” says job seekers should be careful about spreading their energy too thinly. “Starting an ambitious business is such a consuming endeavor, I think it would be hard to do that and look for a job at the same time,” Ms. Mangelsdorf says.

“You should try to be clear if you’re starting a business that that’s really what you want to do, as opposed to you’re only doing it because you can’t find work elsewhere,” she says.

No matter what, those who become accidental entrepreneurs have a leg up on the competition, according to Mr. Reeth of Outright. “The process of going into business is going to make anybody who tried it better, smarter and more capable,” he says.

“Whether it ultimately ends a successful journey in terms of staying in business and this is what you do or you go back and get another job,” he adds, “the skills they will have to develop are going to serve them very well.”